Costa Rica’s economic prospects remain positive. This is demonstrated by the numbers reported by the Institute of Research in Economic Sciences (IICE) of the University of Costa Rica (UCR), in the most recent quarterly analysis of the economy: fourth quarter 2023 and projection for 2024, published on Friday, April 12.
According to the estimates of IICE, Costa Rica is expected to grow 4.4 per cent in its gross domestic product (GDP) in a timely manner during 2024, with a range of 3.99 per cent to 4.75 per cent.
In addition, the institute makes a growth forecast for this second quarter of the year, which puts it at 4.28%, with a more measured percentage than the percentages presented by the country at the end of 2023.
Overall, the economy is unchanged from the conditions presented in 2023 and despite fluctuations in quarterly year-on-year GDP performance, the growth rate is still considered high.
For the last quarter of 2023, growth is supported by the production of the special regime (where free zones are included), which shows an increase of 11 per cent over the previous quarter.
For its part, the final regime (the local economy) also showed year-on-year growth of 4.3 per cent in the last quarter, and although this is still less than half that reported by the special regime.
On the other hand, the IICE draws attention by pointing out that at the beginning of 2023 it was the special regime that promoted the national economy, but that from the second semester it was rather the definitive one that energized production. With this, the Institute hopes that the definitive regime will continue to drive economic growth in the future.
For the time being, the economic sectors that presented the greatest contributions to economic growth were that of manufacturing, and scientific, technical and administrative activities. On the contrary, the lowest contributions to growth were electricity, water and sanitation, public administration and social security, mines and quarries; and other activities. .
Household consumption sustains domestic demand
Spending from Costa Rican families showed a positive year-on-year change in the fourth quarter of the previous year, achieving a change that represented 3.7 percent of GDP. However, this percentage decreased slightly compared to the year-on-year period of the third quarter of 2024 (4.02 per cent).
Government investment and consumption were almost zero in the fourth quarter of 2023 (-0.08 % and -0.06 % respectively). In the second case, the year-on-year changes in expenditure from the Executive were maintained with minimum numbers throughout 2023.
On the contrary, in domestic demand, the final household consumption component experienced a significant growth in the fourth quarter of 2023, from 2.7 % to 6.1 per cent. By breaking this percentage, it is observed that 3.80 p. p. is the product of expenditure on services; 1.22 p. p. for non-durable goods; 0.18 p. p. p. for semi-duration goods; and 0.9 p. p. p. for durable goods.
Occupancy levels have signs of erosion
Considering the occupancy rate year-on-year, it fell by 4.2 per cent, between the fourth quarter of 2022 and the fourth quarter of 2023. In the case of hours worked in the main employment, these were also reduced by 2.3 per cent.
The decrease in total occupation has a simple explanation: eight of the 18 branches of work suffered a decline, with households being the most affected by households as employers -2.67 %, construction -1.60 %, trade and repair -1,35 % and professional and support professional and administrative activities of support -1,30 %. On the other hand, the branches that grew the most were education and health 1.44 % and public administration 1.08 %.
Taking into account the reduction in working hours and GDP growth, productivity improved by 7.6 per cent year-on-year in the last quarter of the year.
Low prices
The Consumer Price Index (CPI) has continued its trend of having negative numbers in the first months of the year and in February accounted for -1,13 %, according to the report.
Similarly, the report indicates that the CPI is less fuel, food and regulated goods, obtained a percentage of -0.24 per cent in February.
Why is this happening? Based on INEC data, IICE notes that service prices are the ones that prevent the CPI from being even further below zero, as they contribute positively to inflation. On the other hand, changes in food and beverage, goods and transport prices are the anchor that has been sinking to inflation since June last year, as they contribute negatively to the variation in the CPI.
In the next three months to come, the analysis foresees that the CPI will increase, finally leaving the negative numbers and placing itself at a margin between it -0.29 % and 2.40 %.
Overall, the businessman has the expectation that prices will not show large variations throughout this second quarter of 2024.
Rates in decline
The Monetary Policy Rate (TPM) has been going on for more than a year with sustained declines. By the end of February, it stood at 5.75 per cent and at the end of March suffered a further reduction of 50 basis points, placing it at 5.25 per cent.
If you look at the distance from the Basic Passive Rate (TBP) it is clear that it has come in a clear decline since mid-April last year. By the end of the second month of this year, TBP remained at 5.07 per cent and IICE expects it to continue the trend of small sustained declines in the coming months. At the beginning of April, according to BCCR data, TBP was 4.92 %.
As for the year-on-year credit balances of the national banking system to the non-financial private sector, as a percentage of GDP, they were relevant in December 2023, as they no longer reflect negative figures and changes in balances accounted for 0.29 per cent of GDP. The figure is explained by the change in consumer credit balances contributing 0.69 p.m. and trade and services 0.26 p.m. But the year-on-year changes in the balances of credits for housing, agriculture, livestock fishing, industry and others were negative, which meant an annual change in credits of 0.29 per cent.
The Central Government increased the year-on-year fiscal deficit by 2023
While the Central Government has maintained the trend since 2020 of lower expenditure, last year there was a phenomenon that revenue also fell (and to a greater extent) from 2022.
In numbers, Central Government expenditure as a percentage of GDP was 18.5 per cent last year (18.9 per cent in 2022), while incomes grew by 15.3 per cent (16.4 per cent in 2022). This resulted in the fiscal deficit being in 2023 of -3,3 %.
With regard to the tax revenues reported by the Central Government as a percentage of GDP, the Income Tax and the Value Added Tax (VAT) are the main “caneras” from which the Government obtains resources. In the case of the first, there was a decrease in its collection compared to 2022, since in that year 5.43 per cent of GDP was collected, while for last year it registered 5.29 per cent. In the second, its collection fell slightly, from 4.89 per cent in 2022 to 4.86 per cent in 2023.
In addition, other indirect taxes, such as alcoholic and non-alcoholic taxes, the transfer of used vehicles, exit fees from the national territory and customs tax revenues, also reduced the amount collected as a percentage of GDP, from 1.22 per cent in 2022 to 0.83 per cent in 2023.
In general terms, other sources such as the Unique Fuel Tax, the Property Tax and the Consumer Tax had very small changes, so the IICE points out that this could indicate that some measures implemented to increase tax collection have already reached their peak.
Exports grow more than imports, despite the exchange rate
During 2021 and 2022, year-on-year changes in exports were lower than year-on-year import changes. For example, in 2022 the difference between the two was -7 p.m. However, by 2023 there is a change in data: exports grew more than imports (with a difference of 10.4 p.m.), even though the exchange rate as of December 2023 had fallen by 11.2 per cent from December 2022.
Overall exports rose between 2022 and 2023. The special regime (where free zones are present) is the one that most boosts exports in the country: it sent $11.857 million abroad in 2023, well above the $6 284 million of the final regime. That number is much lower than the one that exported the special scheme in 2022, when the figure was $9 719 million (i.e. between 2022 and 2023 it increased by $2 138 million) and $5.994 million for the final scheme (annual growth of $290 million in 2023).
The opposite is true of imports. That’s the definitive regime that buys the most outside our borders: $17632 million last year, versus the $4.863 million special scheme. However, the growth of imports of the definitive scheme was lower than the growth of imports of the special scheme (4.5 % vs 7,5 %).
This article has been translated from the original which first appeared in El Pais